Pension transfers - benefits vs rights

nb_bob

What's the difference? My daughter used to work for Shetland council and has a small Local Government Pension Scheme (Scotland) pension amount to transfer to a Private Pension/SIPP. Because her employment was under two years their letter stated "Your pension benefits require to be transferred to another pension scheme or your contributions refunded"

Now they've sent her a 'Transfer of Pension Rights' form which goes through various 'Yes' 'No' questions which I think are aimed to check whether the new pension provider is legit.

The last bit of the form is a declaration that she signs. It says: "I have been advised and understand that early release of my pension rights, before age 55, will normally be an unauthorised payment, which will be subject to significant tax charges (up to 55% of the value of the payment)"

She's only 24 and she's going to transfer to a Dodl SIPP. In this instance, are 'rights' and 'benefits' the same thing and is she going to get clobbered with 'significant tax charges'?

Silvertabby

No, that just warns her that she can't cash in a pension because she is under 55.  But,  with less than the minimum 2 years vesting period, she doesn't have actual pension benefits.  Just the choice between taking a refund (not the same as 'cashing in') of her own contributions less 20% tax (bad) or a transfer to another pension scheme (much better).

nb_bob

Hi Silvertabby. 
Thank you so much for your reply. That's made it much clearer. Very much appreciated.

nb_bob

Silvertabby said:

No, that just warns her that she can't cash in a pension because she is under 55.  But,  with less than the minimum 2 years vesting period, she doesn't have actual pension benefits.  Just the choice between taking a refund (not the same as 'cashing in') of her own contributions less 20% tax (bad) or a transfer to another pension scheme (much better).

The difference in value between 'refund' and 'transfer' is quite a lot; about £2,800 compared to about £11,800. It's a no-brainer really.

Marcon

nb_bob said:

Silvertabby said:

No, that just warns her that she can't cash in a pension because she is under 55.  But,  with less than the minimum 2 years vesting period, she doesn't have actual pension benefits.  Just the choice between taking a refund (not the same as 'cashing in') of her own contributions less 20% tax (bad) or a transfer to another pension scheme (much better).

The difference in value between 'refund' and 'transfer' is quite a lot; about £2,800 compared to about £11,800. It's a no-brainer really.

Isn't it just...and yet lots of people (especially) youngsters would go for the refund because cash today...

Silvertabby

Marcon said:

nb_bob said:

Silvertabby said:

No, that just warns her that she can't cash in a pension because she is under 55.  But,  with less than the minimum 2 years vesting period, she doesn't have actual pension benefits.  Just the choice between taking a refund (not the same as 'cashing in') of her own contributions less 20% tax (bad) or a transfer to another pension scheme (much better).

The difference in value between 'refund' and 'transfer' is quite a lot; about £2,800 compared to about £11,800. It's a no-brainer really.

Isn't it just...and yet lots of people (especially) youngsters would go for the refund because cash today...

During my 20 years at least 90% of unvested leavers opted for the refund rather than the transfer. 

nb_bob

Silvertabby said:

Marcon said:

nb_bob said:

Silvertabby said:

No, that just warns her that she can't cash in a pension because she is under 55.  But,  with less than the minimum 2 years vesting period, she doesn't have actual pension benefits.  Just the choice between taking a refund (not the same as 'cashing in') of her own contributions less 20% tax (bad) or a transfer to another pension scheme (much better).

The difference in value between 'refund' and 'transfer' is quite a lot; about £2,800 compared to about £11,800. It's a no-brainer really.

Isn't it just...and yet lots of people (especially) youngsters would go for the refund because cash today...

During my 20 years at least 90% of unvested leavers opted for the refund rather than the transfer. 

Wow. That's insane. I've explained to my daughters the importance of their personal pensions. Hopefully the advice is sinking.